File: Chapter 27 Growth, Productivity, and the Wealth of Nations
True/False
[QUESTION]
1. Adam Smith stressed specialization and division of labor as causes of economic growth.
2. An economy grows when its population increases.
3. Small differences in economic growth rates can eventually produce large differences in living
standards because of compounding.
4. The Classical growth model argues that markets are an impediment to growth because they
lead to unequal distribution of income.
5. Most economists explain China’s growth after 1980 as primarily due to a more educated
population.
6. People’s knowledge is a type of capital, called human capital.
7. Other things equal, according to the Classical growth model, if Malaysia saves more than
Thailand, Malaysia should grow faster than Thailand.
8. Diminishing marginal productivity implies that a proportional increase in all inputs will
produce a less than proportional increase in output.
9. Classical growth theory argued that economic growth was limited because of diminishing
marginal productivity.
10. New growth theory emphasizes the contribution of technology to growth more than
Classical growth theory.
11. According to new growth theory, the primary source of growth is capital.
12. As a result of the Great Depression, economic thought placed greater emphasis on:
A. long-run growth.
B. short-run fluctuations.
C. international transactions.
D. the problem of inflation.
13. Macroeconomics emerged as a separate subject largely in response to:
A. Adam Smith’s The Wealth of Nations.
B. Alfred Marshall’s distinction between the long run and short run.
C. Irving Fisher’s development of the quantity theory of money.
D. John M. Keynes’s explanation of business cycles.
14. Modern macroeconomics developed as an attempt to explain:
A. long-run growth.
B. persistent inflation.
C. balance of trade problems.
D. short-run business cycles.
15. The U.S. economy experienced the Great Depression in the:
A. 1910s.
B. 1920s.
C. 1930s.
D. 1940s.
16. A concern about long-run economic growth was important in economics:
A. from the time of Adam Smith and his The Wealth of Nations.
B. from the time of Karl Marx and his Das Kapital.
C. from the time of John M. Keynes and his General Theory.
D. only since the 1970s.
17. The study of economic growth focuses on the factors that cause:
A. an economy to move along its production possibility curve.
B. an economy’s production possibility curve to shift out.
C. an economy to move from a point inside its production possibility curve to a point on this
curve.
D. an economy’s production possibility curve to shift in.
18. We can show economic growth in terms of the production possibility curve by:
A. movement along the production possibility curve.
B. shifting from a point inside the curve to a point on the production possibility curve.
C. shifting the production possibility curve outward.
D. jumping to a point outside the production possibility curve.
19. According to Say’s Law, people:
A. supply goods in order to obtain other goods.
B. supply goods in order to accumulate profits.
C. demand goods in order to maximize their welfare.
D. demand goods so they can supply them to others.
20. The idea behind Say’s Law is that people work because:
A. they like to work.
B. they want to buy things.
C. they want to accumulate wealth.
D. work gives them social status.
21. Say’s Law allows growth theorists to:
A. ignore aggregate demand and focus only on aggregate supply.
B. ignore aggregate supply and focus only on aggregate demand.
C. assume that aggregate supply is determined by aggregate demand.
D. assume that aggregate demand is always less than aggregate supply.
22. Robert Lucas reflects the view of many economists when he argues that the most effective
way to reduce world poverty is to:
A. eliminate recessions.
B. increase long-run growth.
C. provide loans to developing countries.
D. take money from those who are very wealthy and give to those who are very poor.
23. Economic growth:
A. does not affect living standards at all.
B. has a relatively small effect on living standards over long periods of time.
C. has a relatively large effect on living standards over long periods of time.
D. is the sole determinant of living standards over any time period.
24. Compounding means that changes in living standards depend:
A. only on the initial level of income.
B. only on the accumulation of changes in income since the initial year.
C. on both the initial level of income and the accumulation of changes in income every year
since the initial year.
D. on neither the initial level of income nor the accumulation of changes in income since the
initial year.
25. Small differences in growth rates can create large differences in income levels because of:
A. specialization.
B. compounding.
C. the division of labor.
D. Say’s Law.
26. The effect of specialization and the division of labor is to make us:
A. more productive and more dependent on others.
B. more productive and less dependent on others.
C. less productive and more dependent on others.
D. less productive and less dependent on others.
27. The Rule of 72 implies that a country with a growth rate of 8 percent will double its income
in about:
A. 4 years.
B. 6 years.
C. 9 years.
D. 12 years.
28. The Rule of 72 implies that a country with a growth rate of 6 percent will double its income
in about:
A. 6 years.
B. 8 years.
C. 12 years.
D. 16 years.
29. The Rule of 72 implies that a country with a growth rate of 2 percent:
A. will never double its income.
B. will double its income in about 7 years.
C. will double its income in about 36 years.
D. will double its income in about 50 years.
30. The Rule of 72 implies that a country will double its income in about 4 years if its growth
rate is:
A. 8 percent.
B. 12 percent.
C. 18 percent.
D. 25 percent.
31. The Rule of 72 implies that a country will double its income in about 9 years if its growth
rate is:
A. 4 percent.
B. 6 percent.
C. 8 percent.
D. 11.1 percent.
32. The Rule of 72 implies that a country will double its income in about 18 years if its growth
rate is:
A. 4 percent.
B. 6 percent.
C. 8 percent.
D. 12 percent.
33. Suppose Botswana doubles its income in 6 years while South Africa doubles its income in 9
years. According to the Rule of 72, the growth rate in Botswana is:
A. 3 percentage points higher than the growth rate in South Africa.
B. 4 percentage points higher than the growth rate in South Africa.
C. 8 percentage points higher than the growth rate in South Africa.
D. 12 percentage points higher than the growth rate in South Africa.
34. Suppose Thailand grows at a rate of 8 percent, Malaysia grows at a rate of 6 percent, and
both countries have the same initial per capita output level. Using the rule of 72, it follows that
in 36 years Thailand’s per capita output will be:
A. 25 percent larger than Malaysia’s per capita output.
B. 33 percent larger than Malaysia’s per capita output.
C. 50 percent larger than Malaysia’s per capita output.
D. 100 percent larger than Malaysia’s per capita output.
35. According to new growth theory, the primary source of growth is:
A) entrepreneurship.
B) government intervention in the market place.
C) technology.
D) capital.
36. Which of the following is a potential cost of long-run growth?
A) Increased unemployment
B) Resource exhaustion
C) Higher trade surplus
D) Higher budget deficits
37. Market economies have been successful in leading to economic growth because they have:
A) allowed companies that pollute to avoid paying any penalty for doing so.
B) ignored private property rights.
C) channeled individual efforts toward production and growth.
D) taken advantage of increased government subsidies.
38. Markets help to promote growth by:
A. increasing specialization and the division of labor.
B. reducing specialization and the division of labor.
C. encouraging self-sufficiency.
D. undermining a nation’s comparative advantage.
39. Specialization allows individuals to:
A. broaden their skill base.
B. become more self-sufficient.
C. focus their attention on one aspect of production.
D. better understand the entire production process.
40. Economic growth causes:
A. the production possibility curve to shift in.
B. the production possibility curve to shift out.
C. a movement toward the production possibility curve.
D. a movement away from the production possibility curve.
41. The growth produced by markets:
A. makes everyone better off and improves the distribution of income as well.
B. affects the wealthy more than it affects the poor.
C. makes the average person better off but may worsen the distribution of income.
D. affects the level of income but not its distribution.
42. Historically, the effect of economic growth generally has been to make:
A. the poor poorer and the rich richer.
B. the poor richer and the rich poorer.
C. all income levels richer.
D. the rich richer but not affect the poor.
43. Historically economic growth through the market has:
A. on average hurt the poor.
B. not affected the poor.
C. helped both rich and poor.
D. helped the poor at the expense of the rich.
44. Per capita growth:
A. occurs only when the population is growing.
B. occurs only when output is growing.
C. occurs when there is an increase in goods and services per person.
D. always improves the distribution of income.
45. If a country’s population is 10 million and its GDP is $113 billion, its per capita output is:
A. $113.
B. $1,130
C. $11,300.
D. $113,000.
46. If a country’s population is 30 million and its GDP is $8.5 billion, its per capita output is:
A. $283.
B. $850.
C. $2,830.
D. $8,500.
47. If a country’s population is 5 million and its output is 195 billion, its per capita output is:
A. $1,960.
B. $9,800.
C. $19,960.
D. $39,000.
48. If output increases by 5 percent and population growth is 3 percent, per capita output grows
by about:
A. 2 percent.
B. 3 percent.
C. 5 percent.
D. 8 percent.
49. If output increases by 2 percent and population growth is 3 percent, per capita output:
A. falls by about 5 percent.
B. falls by about 1 percent.
C. grows by about 1 percent.
D. grows by about 5 percent.
50. If per capita output increases by 5 percent and output grows by 3 percent, the population
must be:
A. falling at a rate of 8 percent.
B. falling at a rate of 2 percent.
C. increasing at a rate of 2 percent.
D. increasing at a rate of 8 percent.
51. If per capita output increases by 3 percent and output grows by 4 percent, the population
must be:
A. falling at a rate of 7 percent.
B. falling at a rate of 1 percent.
C. increasing at a rate of 1 percent.
D. increasing at a rate of 7 percent.
52. If per capita output increases by 2 percent and population grows by 3 percent, output:
A. falls by 5 percent.
B. falls by 1 percent.
C. grows by 1 percent.
D. grows by 5 percent.
53. If per capita output falls by 2 percent and population grows by 3 percent, output:
A. falls by 5 percent.
B. falls by 1 percent.
C. grows by 1 percent.
D. grows by 5 percent.
54. If the distribution of the gains from growth matters, growth in median income is:
A. a more informative measure of growth than growth in per capita income when the
distribution of income is equitable .
B. a more informative measure of growth than growth in per capita income when the gains from
growth are concentrated on a small segment of the population.
C. the same as growth in per capita income.
D. a less informative measure of growth than growth in per capita income.
55. If median income is unchanged from one year to the next, then per capita income:
A. is also constant.
B. is increasing.
C. is decreasing.
D. could be increasing, decreasing, or constant.
56. Which of the following is not likely to contribute to economic growth?
A. Institutions with incentives compatible with growth.
B. Technological development.
C. Entrepreneurship.
D. Government planning.
57. Financial markets are a key institution of growth because:
A. without them people would not save.
B. without them there would be no incentive to invest.
C. they move funds from those who save to those who invest.
D. they allow people to plan better for retirement.
58. What prediction about growth would most economists make if a government enacts a tax on
all transactions in financial markets?
A. The tax would increase growth because it would encourage people to leave the unproductive
financial sector and move to a useful sector of the economy.
B. The tax would probably have no effect on growth because it would not affect capital or
technology.
C. The tax would reduce growth because it would make it harder for those with productive
opportunities to obtain funds from savers.
D. The effects would depend on whether it was borne primarily by the rich or by the poor.
59. What effect would we expect in the market for loanable funds if some people discover a new
business opportunity that requires investment?
A. Supply will shift right and demand will not change.